Key petchems may get excluded in China-Taiwan deal - analysts

15 June 2010 04:33[Source: ICIS news]

By Nurluqman Suratman

SINGAPORE (ICIS news)--Polypropylene (PP) and polyvinyl chloride (PVC) are most likely to be excluded in the "early harvest list" of a proposed trade pact between Taiwan and China, analysts said on Tuesday.

Officials from ?xml:namespace>China and Taiwan on 13 June agreed over the content and structure of a trade deal that would lower the tariffs for Taiwanese products including petrochemicals.

However, analysts said that some key products such as PP and PVC as well as other major petrochemicals exports from Taiwan have yet to be included in the initial list of products – dubbed the “early harvest list” - that the two sides have initially agreed upon.

"The ECFA [Economic Cooperation Framework Agreement] negotiators could be including them in the later discussions or maybe in the last round of talks, but chances are slim," he added.

The trade pact is part of the ECFA between Taiwan and China, to enhance Taiwan’s exports in the face of competition from the country’s rivals in Southeast Asia, according to media reports.

Some 500 Taiwanese petrochemical, machinery, auto parts and textile products would be among the first to benefit from the tariff cuts under the deal, while around 200 Chinese products could go the opposite direction, they said.

Currently, Taiwan exports about two-thirds of its petrochemical output to China – its nearest neighbour.

On an annual basis, a total of 10m tonnes of petrochemical raw materials are shipped from Taiwan to China, on which an average of 6.5% import duties apply.

Taiwan could also strained by the exclusion of the chemicals as China has already agreed to import tariff-free PP from Singapore under the China-Asean (Association of Southeast Asian Nations) trade pact which began early this year, analysts said.

Beijing did not agree to place PP in the list of products to be included in the trade pact as imports of the material from Taiwan could pose a bigger threat to Chinese producers than those from Singapore, media reports from Taiwan said, citing Chinese officials.

Analysts said that other major exports from Taiwan such as PVC, polyethylene (PE), ethylene glycol (EG) and purified terephthalic acid (PTA) were unlikely to be passed through in the ECFA due to the current arrangement under the China-Asean free trade agreement.

Regional rivals in southeast Asia with the implementation of the China-Asean FTA had an unfavourable advantage over Taiwanese petrochemical companies in the China market, said Wang Ching-Hua, secretary-general of Taiwan Synthetic Resins Manufacturers Association (TSRMA).

“Chinese producers are concerned that the reduced tariffs under ECFA for petrochemicals would hurt the domestic market,” said Danny Ho, a petrochemical analyst with brokerage house Yuanta Securities in Taipei.

“Taiwanese producers want the same standing as its competitors in China. It still has competitive production costs for many of the major petrochemical products,” Ho added.

Meanwhile on Monday, Taiwanese Premier Wu Den-yih said that his country has been lobbying hard for the inclusion of eight key petrochemical items, but negotiations on them remain deadlocked, according to news reports.

The list of the petrochemical items Wu mentioned has not been made available.

Wu had said that while China might include some of Taiwan's major petrochemical exports but chances were slim that all eight would be included, the reports said.

According to these reports China made it clear during the early stages of ECFA talks that the country would not offer concessions for finished cars – a major downstream industry for petrochemicals - from Taiwan.

Wu added that the trade pact was most likely to be signed in late June, or latest by early July, according to the reports.